Uncertain Future for Rapidly Growing India

As the country's economy expands, will its political culture take the necessary steps to reform, or will corruption and inequality come to dominate tomorrow's India?

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Ajay Verma / Reuters.

MUMBAI, India -- In the world's expanding economies, from the 19th century U.S. through India today, rapid economic growth often goes hand-in-hand with corruption and inequality. This has been true in market-based economies of the United States during its "robber barons" era to the state-led capitalist model that we see today in China, Russia, and elsewhere in the developing world. But how states respond to this challenge varies widely. The model that India adopts in fighting corruption and inequality will play a large role in determining what kind of country it becomes, and what role the growing Indian market plays in the larger world economy.

Economic development in a weak or collusive state like India's often generates, and is fed by, corruption. This process creates inequalities of wealth, income, and power. However, it's also possible that these very forces, by evoking public discontent, pose a danger to the legitimacy of the capitalist system itself. This danger necessitates a policy response from the state, regardless of its political system or ideological bent.

A number of developing states today, and in the past, have faced the problem of fighting the corruption that is often endemic to rapid economic growth. But the way they have addressed that problem has varied widely.

In the United States, the government responded by instituting regulatory reform and creating a welfare state. Post-unification, Bismarck-era Germany took a similar path around the same time, and later so did the United Kingdom as well as other Western democracies.

The world's fast-growing, emerging economies of today -- particularly the "BRICS" block of Brazil, Russia, India, China, and South Africa -- reveal a diversity of potential outcomes, some far different, and far less sanguine, than the typical Western story.

Russia experienced its own robber barons period in the 1990s under President Borin Yeltsin, in which crony capitalism and oligarchs displaced the old Soviet system. The backlash resulted in a return to authoritarianism under his successor, President Vladimir Putin. The oligarchs were reined in, not by regulatory reform in a pluralistic democracy, but by the iron fist of the Kremlin reasserting its control over the nation; vast resources that had been plundered in the preceding decade.

China, which has remained authoritarian throughout its phase of rapid growth, has responded to bubbling discontent -- a feature of its growing middle class -- by clamping down on dissent, locking up human rights activists, and censoring the internet. Meanwhile, China is fine-tuning its economic model to try and better share the fruits of development, thereby maintaining the political legitimacy of the Communist Party.

India tells a different tale. With a weak central government that lacks the coercive might of either Moscow or Beijing, there is a frenzied grab for scarce resources. In this way, India not changed very much since feudal times. There remains a close relationship between control of resources -- especially land and what springs from it -- and the corresponding economic and political power that they generate.

Presented by

Vivek H. Dehejia is an economics professor at Carleton University in Ottawa, Canada, and a research fellow at CESifo in Munich, Germany.

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